Karen M. Hoguet - Chief Financial Officer

Paul Trussell - Deutsche Bank AG, Research Division Kimberly C. Greenberger - Morgan Stanley, Research Division Matthew R. Boss - JP Morgan Chase & Co, Research Division Steven J. Kernkraut - Berman Capital Management LP Charles X. Grom - Sterne Agee & Leach Inc., Research Division Bernard Sosnick - Gilford Securities Inc., Research Division Jeffrey S. Stein - Northcoast Research Michael Binetti - UBS Investment Bank, Research Division Robert S. Drbul - Barclays Capital, Research Division Paul Swinand - Morningstar Inc., Research Division Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division Lizabeth Dunn - Macquarie Research Dana Lauren Telsey - Telsey Advisory Group LLC Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division Stacie Rabinowitz - Consumer Edge Research, LLC Priya Ohri-Gupta - Barclays Capital, Research Division Michael B. Exstein - Crédit Suisse AG, Research Division Filippe Goossens David J. Glick - The Buckingham Research Group Incorporated Gregory J. Chwatko - Goldman Sachs Group Inc., Research Division Rick L. Snyder - Maxim Group LLC, Research Division Harry Ikenson Wayne L. Hood - BMO Capital Markets U.S. Deborah L. Weinswig - Citigroup Inc, Research Division

Good morning, and welcome to Macy's Second Quarter Earnings Release Conference Call. Today's call is being recorded. I would now like to turn the call over to your host, Karen Hoguet. Please go ahead. Karen M. Hoguet: Thanks, Lorie. Good morning, and welcome to the Macy's conference call scheduled to discuss our second quarter earnings. Any transcription or other reproduction of the statements made in this call without our consent is prohibited. A replay of the call will be available on our website, www.macysinc.com, beginning approximately 2 hours after the call concludes. Please refer to the Investor Relations section of our website for discussion and reconciliations of any non-GAAP financial measures discussed this morning. Keep in mind that all forward-looking statements are subject to risks and uncertainties that could cause the company's actual results to differ materially from the expectations and assumptions mentioned today due to a variety of factors that affect the company, including the risks specified in the company's most recently filed Form 10-K. While we are pleased to have reported a 7.5% increase in earnings per share for the second quarter and a 16.5% increase for the first half of the year, we were disappointed with our sales performance in the second quarter. Remember that we had originally planned sales growth 200 to 300 basis points lower in the second quarter than in the first quarter due to the shift in the timing of the Friends and Family event at Macy's. But the trend did end up worse than what we had expected. We believe that much of our weakness is due to the health of the consumer and the fact that consumers seem to be choosing to make purchases in non-department store categories such as cars, housing and home improvement. Since we're the first to report sales and earnings, it is frankly hard to judge how much of a role the economic conditions played, but we think it was significant. We also believe, however, that we could have produced a better sales performance, and we are discussing what we could have done differently, both so that we can improve the trend in the third quarter and also so that we can have a great second quarter next year. I'll address this more as we go through the call, but the good news is that we believe we have reacted appropriately and our fall plans now reflect increased marketing, as well as greater recognition, that in today's environment value matters a great deal. So we are turning up the volume on that message for the remainder of 2013. We believe that the changes we have made will result in improved sales performance this fall. And while it has only been a few weeks, we are encouraged by our early August trends across the country and, particularly, in the back-to-school categories. I'll now summarize some of the key aspects of our second quarter results, as well as our guidance for the back half of the year, and then I will take your questions. Sales in the second quarter were $6.1 billion, down 0.8% from last year on a comp basis. Remember, the comp sales do not include any amounts attributable to licensed businesses. If sales and licensed businesses were included in both years, our comp sales would have been up 0.3% or 1.1 points better. As we have discussed, this is the most comparable measure to last year because of the conversion of our athletic footwear business to Finish Line and also the introduction of some new brands at Bloomingdale's and at Macy's Herald Square that are licensed departments. Sales at Macy's were disappointing in the quarter across the country, although less so in the Southern parts of the country and Hawaii, where weather was less of a factor. Macys.com continued to be strong relative to last year. Bloomingdale's had a very strong second quarter, both in stores and online. This performance was much improved in comparison to the first quarter, which is very encouraging. If we look at the performance by family of business, trends softened relative to the first quarter, pretty much across the board, with businesses that had been strong remaining so on a relative basis. Business in Center Core, especially handbags, continued very strong, as did key home categories, including furniture and mattresses. We also saw strength in key back-to-school categories, including kids and active, although juniors continued to be weak. Impulse, which is geared to our older Millennial female customer, is beginning to gain traction as we continue to add more new brands. Our 2 most recent launches, Maison Jules, a private brand, and QMack, an exclusive brand by Jones, have both started off very strong. What was most encouraging in the second quarter, however, was the strengthening in feminine apparel. Sales of career and modern wear to work merchandise were strong, and this bodes very well for the fall. We also did very well in opening price points in the women's apparel area. Moving on to the areas with weakness. In addition to juniors, we had a tough quarter in shoes, driven by a weak sandals season. We are hoping for a strong boots season, which would improve our overall shoe trend this fall. Cosmetics, fragrances, jewelry and watches all softened in the second quarter relative to the first, but we do feel better when we look at the overall trend in the first half of the year in those categories. Average unit retail was flat in the second quarter, with transactions down approximately 1.6% and units per transaction up just short of 1%. This is a very different picture than what we had experienced earlier this year. The average unit retail was hurt by the promotions needed to clear through the warm weather inventory, as well as mix, for example, the opening price point of apparel being strong, with jewelry being weak. What was more concerning, though, was the drop in the number of transactions, which is a proxy for traffic. This is in part why we decided to add to our marketing for the back half of the year. Gross margin in the second quarter was 41.8%, down 10 basis points from last year. This was partially due to additional markdowns needed to clear the seasonal merchandise, given how long it took this year for the weather to turn hot. Also pressuring margins in the quarter were the ongoing costs associated with free shipping. These negative factors were offset in part by higher licensed income. Inventory at the end of the second quarter was up 6%. This is consistent with what we had expected and reflects the acceleration of back-to-school receipts and receipts of merchandise in our key brands. Planning the timing of receipts is very complicated this year. Because of the 53rd week in 2012, every week on the fiscal calendar is essentially 1 calendar week later. We believe that bringing these goods in fiscal July was right for driving the sales since customers shop on certain calendar days, even if it falls differently on our retail calendar. SG&A dollars in the second quarter was just short of $2 billion, $10 million less than last year, although up 20 basis points as a rate of sales due to the lower sales. We are very pleased with our expense performance and our ability to minimize the impact on the bottom line of the weaker sales. In the quarter, we benefited from continued good results from our credit business, which generated $31 million more income this year than last year in the quarter. The credit profitability continues to be driven by low losses and the strength of the portfolio, but we do continue to be challenged by credit penetration, which fell versus last year by 70 basis points in the second quarter. As we look to the fall, we are not anticipating big increases versus last year in credit income. The benefit from credit was offset by our added investment in omnichannel, which we're funding to support the continued growth. Interest expense in the quarter was $96 million, $9 million lower than last year. Our tax rate in the quarter was 35.8%. As we have discussed, our tax rate will vary by quarter based on the timing of settlements and other discrete items. Net income in the quarter was $281 million, up $2 million over last year. Average share count on a diluted basis was 389 million shares, down 7% from last year. Earnings per share on a diluted basis were $0.72, which is 7.5% over last year's $0.67. For the first half of the year, comp sales were up 1.5%. And if sales of licensed businesses were included, comp sales would have been up 2.4%. Operating income for the first 6 months was up 2.5% over last year and up 10 basis points as a percent of sales. Net income was up 8% over last year, and earnings per share on a diluted basis was $1.27, up 16.5%. While we were disappointed by our second quarter sales, we were pleased that we were still able to produce 16.5% earnings per share growth during the first half of the year. The cash flow also continued strong during the first half of the year. Cash flow provided by operating activities, net of investing activities, was $348 million, up $103 million over last year. Some of the major variances versus last year were: one, $38 million higher net income; two, $20 million more cash generated from inventory net of payables; and $103 million lower CapEx. We do still expect CapEx for the full year to be approximately $925 million. Also, the combination of the current income taxes, deferred income taxes and the long-term tax liability, which is in other liabilities, was essentially a wash. During the quarter, we utilized $446.7 million to buy back 9.2 million shares, so for the first half of the year, we have bought back $806.5 million worth of stock or 17.5 million shares. As we move on to the fall, we recognize that we are not entering this season with the sales trend that we had expected. However, we have taken actions that we believe will result in stronger trends this fall. We are very excited about the value and the assortments we will be offering our customers, with strengthened marketing to drive customers to our stores and to our websites. Our guidance for the fall is to have comp sales in the 2.5% to 4% range. This would translate to an annual comp increase of 2% to 2.9%. The top end of our guidance is comparable to our expectations at the beginning of the year, with the lower end more reflective of the recent trends. We don't anticipate being able to make up the second quarter shortfall in the back half of the year. And with this lower sales expectation for the year, we are also lowering our earnings per share guidance to $3.80 to $3.90. Our management team is viewing the second quarter as a speed bump. We do not see this as a change in the momentum that we have accumulated over the past 3 years. Our MOM strategies, My Macy's, omnichannel and Magic Selling, are alive and well. And just last week, we saw a huge amount of excitement at a senior management meeting for the new ideas being developed and executed in the My Macy's localization, omnichannel integration and Magic Selling. As noted, we have learned from our shortfall in the second quarter in a manner that we believe will improve our trend, not only in the upcoming holiday season, but next spring as well. We realize the environment in which we're operating will continue to be challenging, but we have made appropriate adjustments and have complete confidence in our MOM strategies and in our team's ability to execute at a very high level. And now, I'll take your questions.

[Operator Instructions] And we'll go first to Paul Trussell with Deutsche Bank. Paul Trussell - Deutsche Bank AG, Research Division: Just a question about the cadence of the sales trends throughout the second quarter, was it weak like from the very start or softened more towards the end? Karen M. Hoguet: No, it was weak throughout the quarter. May was impacted by the shift in the Friends and Family, so it was a little bit hard to judge. But it was weak throughout the quarter. Paul Trussell - Deutsche Bank AG, Research Division: And you mentioned that you are encouraged about the August sales today, particularly in back-to-school categories. Could you give a little bit more color? Specifically, is the quarter-to-date trend within your 2.5% to 4% range? Karen M. Hoguet: I can't comment on the numbers for a couple of weeks, but we are doing significantly better than we were doing in the second quarter in back-to-school, but frankly, across the country and across all the categories. So it really does feel like we're onto a new trend. But again, 2.5 weeks does not make a season. Paul Trussell - Deutsche Bank AG, Research Division: Okay. And lastly from me, you spoke about the marketing approach, the change you're going to have in the second half. Could you just give a little bit more color on what we should expect? Are these sharper discounts across multiple categories? I mean, what should we -- what difference should we see in the marketing and promotional cadence? Karen M. Hoguet: Well, obviously, being sensitive to not sharing data to our competitors. Really, what we're trying to do is communicate more broadly and be more clear and crisp in the communication in terms of how we're offering value. And we're obviously also trying to be very sensitive to the fact that in this environment, price matters. So -- but we're trying to do things in a balanced way, both in terms of brand marketing and also what we call demand. But it really is just stepping up, making our voice louder.

And we'll go next to Kimberly Greenberger with Morgan Stanley. Kimberly C. Greenberger - Morgan Stanley, Research Division: I am wondering if you can just help us think about the second half of the year, and are there any shifts between Q3 and Q4 that we should be thinking about as we're modeling out revenue, gross margin, SG&A? Just help us with the way to think about Q3 versus Q4, if you can. Karen M. Hoguet: There aren't any significant shifts between the quarters. There's lot of shifts between months within the quarters, but not a lot across the quarters. Kimberly C. Greenberger - Morgan Stanley, Research Division: So are you expecting a relatively consistent trend in both Q3 and Q4 as you look out to the back half of the year? Karen M. Hoguet: Yes, but it is hard to forecast at this point. So we'll provide more insight as we get at the end of the third quarter. Kimberly C. Greenberger - Morgan Stanley, Research Division: Sounds good. And then just lastly, if you could just help us think about inventory levels, both at the end of -- well, particularly at the end of Q3, just given the change in the fiscal quarter end date, that would be great. Karen M. Hoguet: I think I would focus sort of on year end, which is when the calendar flushes out and it's the same weeks. Q3 could be a similar situation as Q2 given when the fiscal calendar ends versus the regular calendar. But again, our inventory at the end of the second quarter was actually below our plan. So we feel fine about the inventory levels. Kimberly C. Greenberger - Morgan Stanley, Research Division: And your outlook for year end on inventory? Karen M. Hoguet: You know what, I don't have that in front of me, but my guess is it's keeping in what we would expect sales to be in 2014.

And we'll go next to Matthew Boss with JPMorgan. Matthew R. Boss - JP Morgan Chase & Co, Research Division: As we head into the second half, can you speak to any merchandising initiatives that we should watch for in stores? And also, any categories or changes that you think contributed to the upswing in Bloomingdale's that you talked about? Karen M. Hoguet: I think in terms of what you should see in stores, there's going to be a lot of new brands, as I said, rolled out in the Millennial world, particularly in Impulse, Maison Jules, QMack are the latest. Bar III still looks terrific, that's something I would point to. Looking through ready-to-wear, the assortments are looking better and better. But there's newness in every part of the store, particularly as we head to fourth quarter, and our gifting strategies. I had the chance last week to see the setups of the assortments for the fourth quarter, and there's lots of newness, lots of new items that just look terrific. So we're actually quite excited about holiday for this year. Matthew R. Boss - JP Morgan Chase & Co, Research Division: Great. And then secondly, in relation to the overall aggregate comp, anything you saw as it relates to door to store? I think you have 500, is that -- are you at 500 today? And how do you think this can help as we get into the holiday, having 500 stores up and running on door to store? Karen M. Hoguet: I think what's happening is having increased ability to fulfill demand has been great for the website. It's also great for the stores who can offer inventory that perhaps they don't either carry in that store or that they've run out of. So I think this is a terrific sort of weapon in our arsenal to help grow business this fall, and having 500 doors just increases the probability of satisfying the customer's demand. Matthew R. Boss - JP Morgan Chase & Co, Research Division: As you lap some of the benefits from last year, am I right in thinking that the lower productivity doors, that's where the multiyear opportunity is and that you can basically offer more fashion without taking the inventory risk? Am I right in thinking about that? Karen M. Hoguet: Yes, absolutely. One of the good things that has happened from store fulfillment, to your point, Matt, is that we have been able to give some of the smaller doors more fashion, so that if it doesn't sell at the same velocity that we would like, we can use it to satisfy either Internet demand or demand from other stores. But what this is doing, people often talk about downward spirals, this is actually the opposite. And it's making our offerings in our smaller stores more attractive, and that is beginning to gain some momentum. So we think this will help over time. It's still early, but we think this could be a big benefit.

And we'll go to Steve Kernkraut with Berman Capital. Steven J. Kernkraut - Berman Capital Management LP: I just wanted to get a bit of sense on some of the e-commerce strategy. You're spending a lot of money in terms of putting the inventory -- having the inventory in store, having a direct shipment, all that kind of stuff. But it's the type of thing where -- what is the return that you're really getting from all that? You're not measuring your dollars, you're not providing the dollars to the investment community in terms of how much your sales have done on e-commerce -- this is probably double-counting, but how do you measure the return on investment of what you're spending there? Karen M. Hoguet: Well, we know that the sales growth we're getting is significantly greater because of what we are able to do, not only on the Internet, but with what we're calling these omnichannel transactions, satisfying demand significantly greater. So we know that that's a benefit significant to us. And by the way, if we weren't doing it on the Internet, people would be shopping elsewhere. So... Steven J. Kernkraut - Berman Capital Management LP: Right, but it's the same rationale. Do you build a new store that's cannibalizing another store or do you rehab an existing store? If you didn't do it, the sales of the store would've gone down. But I mean... Karen M. Hoguet: Correct, but the key thing is, Steve, we're... Steven J. Kernkraut - Berman Capital Management LP: You're very comfortable you're getting a return on investment that you desired. Karen M. Hoguet: Absolutely.

And we'll go next to Charles Grom with Stern Agee. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Given the comp shortfalls, surprised that the gross profit margins held in as well as they did. I was wondering if you could speak to some of the positive areas that you saw in the quarter. And also, what your expectations are for the back half on the gross profit line. Karen M. Hoguet: Well, I think the key thing is that the licensed business income is additive to the gross margin and that helped offset not only the lower merchandise margin, but also the added costs associated with the free shipping. So those are really the key components. As we look to the back half of the year, I think we'd still expect gross margins to be flattish, maybe down a touch. And that's consistent with the guidance we've provided all year. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Okay. Great. And then my second question, on your call in May, you spoke to the budget shopper as an area of softness, and I was wondering if that was a factor here in the second quarter... Karen M. Hoguet: Kind of what area? Charles X. Grom - Sterne Agee & Leach Inc., Research Division: The budget shopper, the low-end shopper being an area of softness, I was wondering if that was a factor again here in the second quarter. Karen M. Hoguet: You know, it probably was. We're trying to dissect that, and that information comes to us a little bit later. But that's my suspicion. Charles X. Grom - Sterne Agee & Leach Inc., Research Division: Okay. Okay, great. And then just to play devil's advocate, if there's a crowding out effect from housing and from auto sales, just what gives you the confidence that, that really changes in the back half of the year? Or is it just your expectation in some of the things you're going to do on your own can offset that? Karen M. Hoguet: Well, we have dealt with what I would call shifting consumer moods many times in our past, and I frankly think we can manage through this as well. So we'll see, but I think you're going to see enough newness in our assortments as we head towards holiday that I think if weather cooperates this year, that could be an added plus. But we feel confident that we'll be able to manage through it. But -- yes.

We'll go to Bernard Sosnick with Gilford Securities. Bernard Sosnick - Gilford Securities Inc., Research Division: Could you give us a clue or 2 about what exactly created the exciting response at the management meeting? Karen M. Hoguet: Probably not. But I think what I would tell you is that when we went through all of the offerings, particularly for the holiday season was the focal point, because at this point, back to school is already on the floor in the fall -- the third quarter inventories, it's very exciting. We learn and we get better and better every year with the gifting strategies. Bernard Sosnick - Gilford Securities Inc., Research Division: Okay. So gifting is part of it. With regard to the e-commerce portion of the business, I know you're not breaking it out, and I'm not asking for that. But could you see a slowdown in e-commerce sort of parallel to your overall sales weakness? Karen M. Hoguet: With Macy's, we did. It's was still extraordinarily strong, but it also weakened from the first quarter. Bloomingdale's was equally strong as the Bloomingdale's stores. So it's really the brands that had the movement. Bernard Sosnick - Gilford Securities Inc., Research Division: And I'm sorry, in your comments, I really didn't pick up, I wasn't listening closely enough, I guess, about the weakness in budget, and you said you -- in your answer here that you really weren't quite aware of what might have been the cause. But you did say that in women's apparel, the lower price points were selling well. So could you amplify a little bit about the budget price points? Karen M. Hoguet: Well, it wasn't budget price points, it was the budget-conscious customers, and they can be at all price points. Bernard Sosnick - Gilford Securities Inc., Research Division: Okay. You're seeing value-conscious customers in a way? Karen M. Hoguet: Correct. Correct.

We'll go to Jeff Stein with Northcoast Research Investments. Jeffrey S. Stein - Northcoast Research: Question on the Finish Line in-line store -- a store within the stores, I'm wondering if those are performing better than expected because it seemed to me at the beginning of the year, you were expecting those departments to have perhaps a 20 or 30 basis point headwind to comps, and it looks like, at least in the second quarter, the impact was over 100 basis points. So I'm wondering, is it the improved performance of the Finish Line departments relative to plan, or is it some of the other licensed departments that you've added at Macy's and Bloomingdale's, Herald Square, you mentioned specifically? And if so, if you could just call out what those departments are? Karen M. Hoguet: Finish Line is doing extraordinarily well. I have a feeling -- I'm not sure what that 20 basis point reference is to, so I'll have to go back and check and see what that is. But we feel very good about Finish Line, as well as the other businesses. Jeffrey S. Stein - Northcoast Research: And how many departments -- Finish Line departments do you have currently? Karen M. Hoguet: I'm not sure I know that number specifically. I think at this point, by next year, we're expecting to have 450. But at this point, I think the number is approximately 100. Jeffrey S. Stein - Northcoast Research: Okay, terrific. And one final question real quickly. Can you talk about the drop in credit penetration and what might be the cause there, and if you have any strategies in place to try to bump that up in the back half of the year? Karen M. Hoguet: Well, I think part of it has been related to some of the new regulations, limiting credit lines and limiting our ability to offer credit to customers. And I think part of it is just related to the overall weakness in the business in the second quarter. So our hope is that we will begin to also improve penetration as the overall marketing increases and the business strengthens.

We'll go to Michael Binetti with UBS. Michael Binetti - UBS Investment Bank, Research Division: So just really quickly, as we think about the back half and last year, we were talking about how favorable the calendar was between Black Friday and holiday with the extended, I guess, the extended holiday shopping days. And this year, I think, it's a much shorter calendar. Could you help us to think about what the impact that may have on the holiday outlook as we look to our fourth quarter modeling? Karen M. Hoguet: Yes. The truth is, I've heard people argue that it will hurt us this fourth quarter, and I've heard people say that it doesn't hurt us. I think I fall more to the "it won't hurt us" because people are going to spend a certain amount of gifts and they'll just have fewer days to do it. Last year, the Christmas season felt like it went forever, and I think the compression may add to more excitement and frenzy, which could help business. But we'll have to see as we get through the fourth quarter. Michael Binetti - UBS Investment Bank, Research Division: Okay. And then you -- I think you called out weather as a potential plus. You've obviously had 2 bad winters in a row here. Karen M. Hoguet: Two in a row? I'm not sure, but yes. Michael Binetti - UBS Investment Bank, Research Division: Yes. And so, can I assume that you're planning the outerwear categories fairly conservatively? And if so, if weather plays ball, maybe some comments on what your big outdoor vendors are telling you as far as being able to help you guys chase -- I mean, they've also, obviously, had inventory pressures the past few years as well and will probably want to be conservative. Karen M. Hoguet: Yes. No, I can't comment on the vendors because I haven't had those conversations. We are planning it conservatively, and we're also talking about what if it goes back to the old days of a typical cold weather and making plans accordingly with the vendors. But I can't comment on any of the specifics. Michael Binetti - UBS Investment Bank, Research Division: Okay. And then maybe finally, just on your saying that -- your guess is that you're going to find at the budget-conscious consumer has been your hunch is to what's been sluggish. And as you're adjusting the plan, just so we think about it, is the plan to flow in maybe a higher mix of lower opening price points or is it maybe more to keep the merchandise more consistent, maybe hit the coupons a little heavier which would line up with your step up in marketing comment? Karen M. Hoguet: Honestly, it's a little bit of both. And part of it is just that we may have moved away too far from some of the opening price points in women's apparel. And so part of it just may be we're finding our strategy in terms of key items.

We'll go to Bob Drbul with Barclays. Robert S. Drbul - Barclays Capital, Research Division: I guess with the second quarter results and the uncertainty that persists into the back half of the year at this point, what is your appetite for share repurchase, and how has it changed over the first half of the year? Karen M. Hoguet: Hasn't changed at all. I mean, we don't see anything changing in terms of the underlying value of the company. And our cash flow continues to be very strong. Robert S. Drbul - Barclays Capital, Research Division: Okay. And when you look, I guess, in dissecting the business, would you attribute competitive pressures to any of the shortfall? Karen M. Hoguet: I'm not sure how to answer that. As we moved into the second quarter, we may have waited a bit too long to start marking down the warm weather goods. And I think some of the competition started doing so sooner than we did. That may have caused us to lose some sales in the quarter. I'm not sure. But frankly, as we looked back on the quarter, we were more concerned with things we did or didn't do ourselves as opposed to what competitors were doing. Robert S. Drbul - Barclays Capital, Research Division: And then the last question is, I think you said broadly speaking, the sales results of Macy's were disappointing. But geographically, either in the second quarter or, I guess, for the last few weeks, in early back-to-school, are there any geographic callouts that you would make for us? Karen M. Hoguet: Well, I had said that in the second quarter, the South continued to be stronger than the North. So that's been a continuation, but the South weakened as well in the second quarter. And as we moved into August, everything has gotten significantly better. And it's hard to judge by geography given some shifts in the tax-free weeks. But my sense is that everything has risen in terms of the level of performance.

And we'll go to Paul Swinand with Morningstar Investment Research. Paul Swinand - Morningstar Inc., Research Division: Just a quick question on the -- kind of all the Internet and analytical tools that you're using. I noticed, for example, on your website you've got things that are trending. There's also some talk in the industry about using weather analytics. Are there any callouts or is this just still too early to tell? Are you getting any -- can you give us any color on the effectiveness of some of the Internet and online analytics that you're using and how that might affect sales and markdowns? Karen M. Hoguet: Well, we think that having the online analytics helps us to better understand our customer in what we call a 360-degree view, which is very helpful in trying to fine-tune our marketing and how we're sending e-mails. And we're trying to get better and better at personalization. So we do think it's helping, but we're really at the very early stages of utilizing that data. Paul Swinand - Morningstar Inc., Research Division: So it's really first inning? Karen M. Hoguet: Oh, absolutely. Paul Swinand - Morningstar Inc., Research Division: Okay, great. And then real quick, I know you talked a little bit about the outlets and you said transactions are a proxy for traffic. You thought the outlets were a little stronger, but I know in one of the conferences you said your were opening sort of a hybrid in Gurnee here in Illinois. Can you comment any more broadly on the long-term trends? Do you think that the outlet areas are going to continue to drive traffic off mall, still getting more general traffic? Do you think that's going to continue, or it's just a blip in the second quarter? Karen M. Hoguet: Well, I didn't comment at all about the outlet business, so let me take a step back. Macy's, we don't have an outlet business. We did open a new store during the quarter in Gurnee Mills, which is an outlet mall that also has some regular retail as well, so let's say regular Macy's store that's opened at Gurnee and has opened incredibly strongly. And if it does well, it's possible that we would open regular Macy's stores in other outlet malls across the country. Bloomingdale's does have outlets, and as I've said on prior calls, we're still refining that strategy. We did open one in the quarter in Rosemont in Chicago, which I've not seen yet, but people who have seen said it's absolutely spectacular and hopefully bodes well for the strategy going forward. Paul Swinand - Morningstar Inc., Research Division: I thought in your -- maybe one of the responses to the questions, you said that the traffic to outlet malls was better or you were losing share more to outlets. Karen M. Hoguet: I didn't say that. Paul Swinand - Morningstar Inc., Research Division: I'm sorry. Karen M. Hoguet: No, I'm not even sure what I said. I did not say that.

And we'll go next to Lorraine Hutchinson with Bank of America. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: You had talked about some things that you could have done differently in the second quarter. Was that around product, specifically, timing, marketing? What would you attribute that to? Karen M. Hoguet: Honestly, yes, yes and yes. We've got -- we're very self-critical and we're all perfectionists. And so, even though we can point to lots of things in the economy, in the environment that hurt the business, we are all determined to do whatever we can to improve it. So we looked at things, said, "Did we have too much reliance in the quarter on regular priced promotion? Should it have been more, what we call, demand promotion? Did we have too much fashion and not a lot of core seasonal merchandise? Did we have enough opening price product to fuel the second quarter? I mean, we went on and on and on, looking at all the things we felt we could do better. And we've made notes for next year in the second quarter and we immediately began fine-tuning our plans for the third and fourth quarter for this year. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: And then as you look at your inventory balances coming into the third quarter, have you cleared through all of the summer goods that were liable? Karen M. Hoguet: We have not cleared through it all because, as you know, the weather is still quite hot. But we're where we had expected to be in terms of the clearance. So we are working through that inventory as we had expected. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Okay. But we shouldn't expect any carryover gross margin impact into the third quarter? Karen M. Hoguet: No. Not any different than what we had planned. Lorraine Maikis Hutchinson - BofA Merrill Lynch, Research Division: Okay. And then just looking at the marketing plans for the back half, are you elevating your spending levels, or are you just changing the marketing message? Karen M. Hoguet: No. We are spending more. And we, again, started working on this a while ago, and so we were able to offset the added marketing costs in other parts of the business. So it shouldn't be an SG&A issue. But yes, we are accelerating the spend.

We'll go to Liz Dunn with Macquarie Capital. Lizabeth Dunn - Macquarie Research: I guess I'll start with just the improvement that you've seen in the last few weeks. Is that improvement in fall goods, or is that selling through some of the spring summer carryover? Karen M. Hoguet: Both, but the encouraging part is the new goods. You'd expect us to keep selling summer goods at great values. But the new product has been selling well also. Lizabeth Dunn - Macquarie Research: Okay. In terms of looking at some of these kind of inflection points in the quarter, or maybe they're not inflection points, maybe just anomalies, but as you think about the flattening out of AUR and sort of the slowing in performance of shoes, cosmetics, fragrance, jewelry, watches, can you see sales accelerate in the back half without a change in that trend from the second quarter? Karen M. Hoguet: We can, but we also expect a change in that trend. Lizabeth Dunn - Macquarie Research: Okay. How much is the Center Core as a percentage of your business? Karen M. Hoguet: I don't have that in front of me, but you can find it on the website. Lizabeth Dunn - Macquarie Research: Okay. And then finally, in terms of those categories that were a little bit softer in the quarter, was that still -- was that a factor at Bloomingdale's as well or did those categories perform strongly and consistent with where they had been at Bloomingdale's or even accelerate? Karen M. Hoguet: I think Bloomingdale's was similar in terms of the change in trend in some of these businesses. But again, other than juniors, which has continued to be weak, we're not overly concerned about the trend change in the second quarter in those businesses as we look at the whole spring season.

We'll go to Dana Telsey with Telsey Advisory Group. Dana Lauren Telsey - Telsey Advisory Group LLC: Can you talk a little bit more about the licensed business opportunities? It seems like it's becoming more important and it seems like it's doing well and adding. How do you see that progressing? And then just lastly, the timing shifts of the event into the first quarter from the second quarter, are there any other timing shifts of events that we should be watching? Karen M. Hoguet: I'll answer the second question, which is no, as we go through the fall season, so there's nothing -- no major shifts between the third and fourth quarter. In terms of the licensed businesses, I think they provide a great opportunity for us to offer really compelling assortments and categories, where either we can't get the product or we don't have the right selling model. And they've been very successful, whether it be Sunglass Hut or now, Finish Line. In the case of Bloomingdale's and also Herald Square, it enables us to bring in some designers and brands that we can't -- couldn't get on an owned basis. And they're working very well. So we do feel good about it. Will we continue to find opportunities? I think so, and I hope so. Because again, our mission is to provide great assortments of wanted product to our customers any way we can. And if we can't do it ourselves, we love finding partners like Sunglass Hut or Finish Line to work with to bring the best that we can to Macy's and to Bloomingdale's.

And we'll go to Richard Jaffe with Stifel. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: A couple of quick questions on the credit opportunity, with more advertising or more marketing being front-loaded in the second half, will some of that be directed to signing up more credit customers to try and build the credit card portfolio and the credit card income in the second half? Karen M. Hoguet: We always invest a lot in doing so, but there's not an increase versus what we had planned originally. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: And so your outlook for the credit contribution in the second half is... Karen M. Hoguet: We think it will be up over last year, but not by a lot. Richard Ellis Jaffe - Stifel, Nicolaus & Co., Inc., Research Division: So at a rate less or above than we saw in the first half? Karen M. Hoguet: Probably significantly less.

And we'll go to Stacie Rabinowitz with Consumer Edge Research. Stacie Rabinowitz - Consumer Edge Research, LLC: You had talked a little bit about maybe wishing you hadn't bought quite so many fashion items or maybe I'm misinterpreting you. Could you talk a little bit about how sort of fashion versus basics performed during the quarter, and also, maybe own brands versus some of the labels? Karen M. Hoguet: Private brands had a terrific quarter. Obviously, always we have some that perform better than others, but we've had terrific success with our private brands in the second quarter, as well as for the spring season in total. And I don't have the data on true fashion versus basics, but we're always fine-tuning that balance. But fashion is obviously very important to the Macy's customer, but also obviously, he or she also needs basic items. So you've got to get it balanced right.

And we'll go next to Priya Ohri-Gupta with Barclays. Priya Ohri-Gupta - Barclays Capital, Research Division: Just wondering if you could update us on your thoughts around adding more debt to your balance sheet over the remainder of this year. And then whether there's any change in your sort of thought process around where you want to maintain the leverage target within your range, and whether it's more prudent to keep a little bit more cushioned just given the uncertainty around the remainder of the year. Karen M. Hoguet: I mean, as you know, we're currently at the very low end of our range in terms of leverage. And as I've said in the past, there's a good chance that we could issue some more debt this year and, again, it will depend on market conditions.

And we'll go to Michael Exstein with Credit Suisse. Michael B. Exstein - Crédit Suisse AG, Research Division: Two quick questions for you. Number one, Bloomingdale's was very early to see a slowdown in the organization, and now you're saying that it's probably seeing an improvement in its business. Do you think it's acting as an early warning to your organization? And secondly, what are your plans or how are you positioning Macy's to sort of ride improving home-related good sales and to hopefully offset some of the slowdown elsewhere in the mix? Karen M. Hoguet: Well, home has been a strong category for Macy's for the last couple of years, and we continue to build on that success, both in terms of the assortments, adding Millennial products throughout, for example, textiles, even some in housewares and furniture and mattresses -- less mattresses, but more furniture. And we continue to build on that strength and expect it to continue. So that's been a strong category all year, and we think that will continue throughout the fall season. In terms of Bloomingdale's, as you know, they had had a weaker first quarter, strong second quarter, the opposite of Macy's. But we do hope it bodes well for Macy's as we go through the fall. Michael B. Exstein - Crédit Suisse AG, Research Division: Is there any history of it, sort of being an early warning or a canary in the coal mine in terms of business? Karen M. Hoguet: Not really. I'd like to believe so today, but we'll see if we get through the third quarter. Michael B. Exstein - Crédit Suisse AG, Research Division: Well, we're all looking for something. Karen M. Hoguet: Yes, no, I think what's interesting, though, Michael, as we look at, again, it's only been 2.5 weeks, but the whole back-to-school area has been doing well, and that makes us feel good. And the fact that new merchandise is selling has to be a positive versus what we've seen during the second quarter. Michael B. Exstein - Crédit Suisse AG, Research Division: How influenced has the selling been by any changes in the sales tax holidays? Karen M. Hoguet: Don't think it has been. I mean, we've been tracking where there haven't been those. It's harder because, as you know, every state seems to change them. Michael B. Exstein - Crédit Suisse AG, Research Division: Yes, every year. Karen M. Hoguet: And different -- so we've been focused on versus planned versus looking at it versus last year because of all of those shifts. But I don't think that's the reason.

And we'll go to Filippe Goossens with Mitsubishi Securities.

Another follow-up on the credit card performance. You made reference to changed regulations. Can you just clarify a little bit more what you meant? And then, kind of the second part of my question is, if you look at your terms, are they at all any more restrictive than any of your competitors, even including the banks that may perhaps limit somewhat the upside in the amount being charged on your cards? Karen M. Hoguet: Yes, it's a good question. I don't know the answer relative to the granting of credit. As you know, Citibank owns our credit business, so they're really the ones who make all the risk decisions. And I can't speak to how Citi makes those determinations versus others as to whether it's tougher or not. I'm not sure about that.

Okay. And then my second question, Karen, you made reference a couple of times to competition. Can you at all comment on whether the return of promotions at JCPenney had an impact on the performance in the quarter? Karen M. Hoguet: I really can't comment on that.

And we'll go to David Glick with Buckingham Research. David J. Glick - The Buckingham Research Group Incorporated: Most of my questions have been answered, but just wanted to get an update on what you're seeing at Herald Square. Did that -- is that progressing as you would expect it? Obviously, it's a major capital investment for the company. And did the disruption there have any impact on your overall business? And in tourist cities, in general, did you see any changes in your trend in Q2 versus prior quarters? Karen M. Hoguet: I don't think there was a particular trend in tourist cities. As I said, every place sort of got worse except the Southern parts of the country. But I don't think there was a big difference tourist versus not. Herald Square is doing very well in terms of our own sales relative to plan. And if we include the license sales, they're doing better versus last year. Once we get through this fall season, we'll be through, I believe, the worse of the disruption, meaning the main floor. And for those of you in New York, I'd urge you to come and watch the changes. By November, we should be reopened on the first floor, and it's looking terrific. And we feel very good about how the business has responded. The shoe business, while overall shoes hit a tough quarter, Herald Square did very well. And we feel really good about the areas as we reopened them. David J. Glick - The Buckingham Research Group Incorporated: Great. And just a follow-up on marketing. At what point in this past quarter did you decide to kind of strengthen the marketing in the second half? And did it have any impact on the back-to-school business that you're seeing now? Or should its impact just kind of given marketing lead times be more focused on later in the fall season? Karen M. Hoguet: No. I think we started making the changes earlier in the quarter. So it is helping in terms of the August business and will keep going as we go through the fall season. David J. Glick - The Buckingham Research Group Incorporated: And also, just a clarification. I'm assuming your comments about the last 2.5 weeks are on a kind of apples-to-apples calendar basis, shift-adjusted for the 53rd week. Karen M. Hoguet: Yes, I mean, it's relative to what we had expected.

We'll go to Gregory Chwatko with Goldman Sachs. Gregory J. Chwatko - Goldman Sachs Group Inc., Research Division: Just wanted to follow up on the flexibility with regards to issuing a bit more debt, could we consider uses of capital there? Could you give us an idea of what the uses would be? And then as part of that, would you consider potentially paying down some more of the higher coupon debt as you've done in the past? Or do you feel comfortable with the levels where they -- those maturities are as far as size and such? Karen M. Hoguet: Well, where we had to issue debt, it would be to either prefund maturities next year and also fund the buyback program that we've talked about. In terms of refinancing higher coupon debt, we're always doing the analysis to see if it makes sense. But obviously, we've done those issues that made the most sense. And it just depends on the economics in any given point.

And we'll go to Rick Snyder with Maxim Group. Rick L. Snyder - Maxim Group LLC, Research Division: Could you give us some sort of an idea how much the licensing is benefiting gross margin and sales during the second quarter? Was it a steady decline, or did we see choppy sales like we've seen in the past? Karen M. Hoguet: No, we had seen choppy sales throughout the quarter, I mean, all the way through. And we don't comment on the specific components of gross margin.

[Operator Instructions] We'll go next to Harry Ikenson of Ikenson Research and Consulting.

Karen, you mentioned that you're excited about the new trend, and you said in women's sales going forward. I was wondering if you could comment at all on some of the excitement, if you can't be specific on anything on colors or is it a new silhouette, just give us something that you can comment on that you feel comfortable with. Karen M. Hoguet: Well, we talked about the modern wear to work, suit separates has been very strong, as well as some of the opening price point, more key items have done well also. Active has been very strong, which is pretty much a new category for us over the last year or so. And we're beginning to see traction for the younger feminine customer or the older Millennial customer in the Impulse area. Some of the new brand launches are doing extraordinarily well, and we're building business there also.

And we'll go next to Wayne Hood with BMO Capital. Wayne L. Hood - BMO Capital Markets U.S.: A couple of questions. One, I just wanted to deep dive a little bit more into how you express in the marketing message your value proposition, because just looking at this past weekend's back-to-school flyer, I mean, you're in there with Levi at $39.99 and JCPenney's at $40. So if you look at that, there's really not much difference in the value proposition other than you're emphasizing more styles, size and colors. So as you think about how your message evolves, is it going to be more about price, or you leave that alone? Or you just emphasize the style, size and color differences between you and others on key brands? Karen M. Hoguet: I don't think I'm going to comment on this, Wayne. You'll have to wait and see. Wayne L. Hood - BMO Capital Markets U.S.: Okay. The other thing kind of related to this, if we were to enter a period where the consumer was beginning to buy the opening price point goods at a more sustained basis, what does that do as you think about your comp rather than being 3, it might be 2 or 1 to 2 rather than 3, and what does that do for your leverage metrics if we do get into a period like that from an expense standpoint? Karen M. Hoguet: Well, remember, I don't mean to imply that opening price point is taking over the store. It's still going to be very balanced, and it's just been slightly stronger in the second quarter, but it's not the pendulum going completely to the other direction. And all of these factors were taken into consideration when we gave the guidance of the 2.5% to 4% for the fall season. Don't overreact. It sounds like you're overreacting. Wayne L. Hood - BMO Capital Markets U.S.: Okay. My final question, back to credit then, like everyone else, I guess, if you were to push Citi to go deeper into the file to try to drive traffic, would you be willing to incur less credit income for that increased traffic and anticipating that losses might grow into 2014, so therefore, that we might begin to think about 2014 where credit income could actually be down year-over-year? Karen M. Hoguet: Well, first off, Citi makes those decisions in terms of the risks. But having said that, if it were -- if I were making those decisions, I probably would push farther. But again, that's not within my control.

And we'll go next to Deborah Weinswig with Citi. Deborah L. Weinswig - Citigroup Inc, Research Division: So 3, hopefully, quick questions. So as we look and dive into the Millennial strategy, which I think you've been incredibly effective, if you look at the Impulse strength versus juniors, and I know you still have a lot of brands rolling out this year and next, can you maybe talk about some of your early wins at this point in the game? Karen M. Hoguet: Well, I think the early wins have been both in active, which has done extremely well, both some of the market brands, as well as their own private brand, Ideology, which is terrific product at a great value. On the Impulse side, the new brands, Bar III, which was the first big private brand in Impulse, has done very well, some of the market brands. And again, the launch of Maison Jules last week went extraordinarily well. So we think that it's product and assortment is first and foremost for that Millennial customer. Juniors has taken us a little bit longer and not as optimistic that we're going to have it turned around this fall. But hopefully, for spring of '14, that will begin to strengthen. Deborah L. Weinswig - Citigroup Inc, Research Division: Okay. And then I had an unusual amount of time to spend on your website, but I went and revisited Everyday Value and just wanted to know some additional insight in terms of how you're utilizing that as an opening price point, especially as you look at your strategy in the back half of the year? Karen M. Hoguet: I don't think there's any change with that, Deb, in terms of what we've done in the past. Deborah L. Weinswig - Citigroup Inc, Research Division: All right. And then in terms of the improvement at Bloomingdale's, just wanted to know how kind of the Loyallist program fit into that as well? Karen M. Hoguet: I think the Loyallist program, as it continues to get refined, is becoming more important to driving the Bloomingdale's business. So I don't know the specifics, but I have to believe that's been a factor. Deborah L. Weinswig - Citigroup Inc, Research Division: All right. And then, lastly, as we think about MOM, with Magic Selling training kind of going into the back half of the year, as we think about kind of maybe more of a value message, will the associates on the selling floor also have that as part of their training? Karen M. Hoguet: Absolutely. And again, our sales associates are taught to engage with the customers, and one of the things that Peter Sachse, who is running the stores now, says to them, sell from the heart. All of that training, I think, really is paying off, and they are very sensitive to the messages of the company in terms of the importance of communicating value. So I believe that will be done very effectively on the selling floor.

That concludes our question-and-answer session. I'll turn the conference back over to Karen Hoguet for any additional or closing comments. Karen M. Hoguet: Great. Well, thank you, all, for your interest in the company and your support. And as always, if you have other questions, feel free to call me, Matt, Sara, and we'll do our best to get them answered. Thanks.

That does conclude today's conference. Thank you, all, for your participation today.